Summary

CBO is currently analyzing the soundness and affordability of the National Flood Insurance Program (NFIP). The major activities of the program, which is administered by the Federal Emergency Management Agency (FEMA), include collecting the premiums for flood insurance policies, paying claims for damage, mapping and mitigating flood risk, and promoting floodplain management. Current authorization for the NFIP expires on September 30, 2017.

To arrive at the findings reported here, CBO compared collections from premiums (the total annual amount that households pay for their insurance) with the expected costs for the 5 million policies that were in place under the NFIP in the 48 contiguous states on August 31, 2016. This analysis uses estimates of expected claims—the largest, but highly uncertain, component of the program’s expected costs—produced by commercially available models. Those estimates are significantly higher than the estimates resulting from FEMA’s approach to measuring expected claims.

The preliminary findings from CBO’s ongoing analysis include the following:

A variety of comparisons involving different components of the NFIP’s expected costs and of premiums for insurance purchased under the program suggest that the premiums fall short of costs.

Approximately 25 percent of NFIP policies are intentionally subsidized.

On net, premiums fall well short of expected costs in coastal counties but slightly exceed them in inland counties.

In the future, expected costs and premiums will probably differ from those estimated for policies in place in August 2016 because the composition of policies, insurance rates, and program costs unrelated to those rates continue to change.

The estimates of the NFIP’s average annual costs in CBO’s 10-year baseline are lower than those suggested by this analysis in large part because the baseline reflects FEMA’s lower estimate of expected claims.

The median premium payment for residential coverage is roughly $520 per year.